Case Study: Blended Family
Jay needs to do his Will and estate plan. He and Gloria are married, but Jay has two adult children from his first marriage, Claire and Mitchell. Gloria has one child from a previous relationship, Manny aged 10, who lives with her and Jay. Jay and Gloria have just had a baby together, Joe.
Most of the assets of the couple are held in Jay’s name, and include a business, a house, bank accounts and motor vehicles to the value of $10,000,000. Jay also has a self-managed superannuation fund valued at $1,000,000. He has no life insurance, but has no debt.
These are the factors he needs to consider:
Jay needs to think about who would be best as executors. Gloria alone could be the executor, if she survives Jay, but it depends on how the estate is structured. It may be more beneficial to have more than one executor, because there are minor children to consider, being both Manny and Joe.
Guardians for children
If Gloria and Jay die together, consideration needs to be given to a guardian for Joe and Manny. Gloria wants to make sure that Manny stays in the country and doesn’t return to South America, and she wants to make sure that Manny and Joe are together. So the best options for guardians are Jay’s adult children. Neither of them really mind if it is Claire and her husband, or Mitchell and his husband, that care for the children. But their primary concern is that their children are in a stable home with other children and that their guardians won’t go through a divorce.
Jay has many people who he has an obligation to provide for. He needs to take into account family provision legislation that allows a family member to make a claim against his Will if they are not sufficiently provided for. Gloria, his wife, would have the best claim if she was not adequately provided for. But Jay also has to manage they interests of his adult children from his first marriage. He also needs to ensure that his baby is provided for, and he needs to consider to what extent he provides for Manny, his step-son. Should Manny be treated equally to his own natural children?
Superannuation is not an estate asset, so needs to be dealt with separately. There are three primary categories of people that superannuation can be given to: spouse, children, or legal personal representative (filtered through the Will via the executor). Jay needs to consider whether he leaves a reversionary beneficiary to the pension in his superannuation fund, or whether he should leave a direction for the payment of a lump sum from his superannuation fund. He also needs to think about the tax treatment on the super fund, as Gloria and Joe won’t be taxed, but his adult children would be.
Jay also needs to consider what will happen with his business on his death. Has a strategy to make sure the business continues if he dies been put in place? Does he have key-person insurance in his business for himself? Is there a business partner and should they enter into a buy-sell agreement?
What Jay decides to do:
He appoints Gloria and Mitchell as his executors, with Claire as the back-up in case either Gloria of Mitchell predecease Jay.
Then Jay gives a $250,000 legacy to Mitchell and Claire, and leaves the balance of the estate on a life interest for Gloria to use. She has the house to live in, and she has the interest income from the investments to live off. Jay also puts Gloria down as his binding nomination on his superannuation fund, so she will also get the $1,000,000 in super assets. On the death of Gloria, the estate gets split 4 ways, to go equally to Mitchell, Claire, Manny and Joe.
If either Mitchell or Claire (or Manny or Joe) predecease, leaving children (Jay’s grandchildren), then those children would get the share their parent would have got, once they reach twenty-five years.
In the event that Gloria predeceases Jay, Claire and Phil will be guardians for Manny and Joe. Mitchell and Cam would become guardians if either Claire or Phil predeceased, or if they separated.
If Gloria has predeceased, then the whole estate gets split into four equal parts and goes to Mitchell, Claire, Manny and Joe.
Manny and Joe have to be twenty-five before they can inherit anything in either scenario, so funds will be held on trust by the executors until they reach that age.